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The Brazilian economic agenda after the successful introduction of the Plano Real in July 1994 continued to be dominated by efforts to stabilise the economy. The evolution of macroeconomic policies and the constraints they faced under the two administrations of Fernando Henrique Cardoso (1995–2002) is the central concern of this chapter, which is inevitably more speculative than its predecessors because it is based on a more restricted range of published research and lacks a sufficiently long time perspective.
At first, the main economic policy objective of the Cardoso administration was to consolidate the results of the Plano Real and to make sure that Brazil’s long experience of high inflation was really over. But soon the need to bring public accounts under control and to make a sizable external adjustment would become the main challenges. A major balance of payments crisis early in 1999, immediately after Cardoso’s re-election, imposed much overdue drastic changes in economic policy. Further disturbances occurred in 2002, the last year of Cardoso’s second term, as financial markets reflected fears that economic policy could be reversed with the likely victory of the opposition presidential candidate, Luiz Inácio Lula da Silva, the trade union leader who had emerged from the bitter fights of organised labour against the military dictatorship in the late 1970s and early 1980s, and one of the principal founders of the Partido dos Trabalhadores (PT) – Workers’ Party – in 1980. He had come second to Collor de Mello in the presidential election of 1989 and second to Cardoso in the elections of 1994 and 1998.
For fifty years (1930–1980) Brazilian growth performance had been outstanding with GDP per capita increasing on average 3.7 percent annually. Growth had been particularly strong in 1967–1973, and to lesser extent in 1974–1980 In the years 1981–1983, during the administration of General João Figueiredo (1979–1985), the last of five successive military presidents since the military coup of 1964, there was a sharp deterioration in the Brazilian GDP growth performance. Brazil suffered its most severe recession of the twentieth century. GDP fell 4.9 percent from its peak in 1980. After a brief recovery in 1984–1985 when GDP grew on average 7 percent per annum – years that also witnessed a transition from military to civilian rule (and ultimately a fully fledged democracy) – growth performance remained mediocre during the following two decades. Between 1981 and 1994 GDP per capita increased on average less than 0.1 percent annually. And there was only limited improvement in the decade after 1994. There was also only modest structural change: agriculture maintained its 10 percent share of GDP from the mid-1970s to the end of the century while the share of manufacturing industry fell from its peak of 34 percent in the mid-1970s to 28 percent in 1990 and remained constant afterwards. (For economic data on selected years between 1980 and 1994, see Table 6.1.)
Brazil was a very sparsely occupied country in 1930: with a population under thirty-five million, there were only slightly more than four inhabitants per square kilometre. Population was unevenly distributed with a heavy concentration on the coast and in the Southeast and Northeast. Population increased 2.8 percent per annum in the half-century to 1980: at increasingly higher annual rates until the 1960s, then at decreasing rates afterwards. In 1980 the population was 119 million, almost fourteen inhabitants per square kilometre. But population density still varied considerably: in the North it was only one inhabitant per square kilometre while in the Southeast it was around forty. The Southeast’s share of the population was 44.6 percent in 1920 and was still 43.5 percent in 1980. The Northeast’s share of the total population fell in same period from 36.7 percent to 29.3 percent. Data that are not strictly comparable indicate that the share of the population in cities with populations of 20,000 and more increased slowly in the two decades after 1920 to reach 16 percent in 1940 and then very rapidly in the 1950s, 1960s and 1970s to reach 51.5 percent in 1980.
Rent-extraction activities traditionally have played an important role in Brazil since colonial times; witness the central role played by farmed-out monopolies and tax contracts and the many restrictions affecting economic activities. Much has been written about property rights in imperial Brazil (1822–89), but most of it has dealt with either land property rights or slave-owning during the transition to a free-labor regime. Labor policies played a major role in Brazil from colonial times as the government underlined permanently the dominance of the objective of maintaining low manpower costs throughout the period. Requiring net slave imports, the Brazilian economy was particularly vulnerable to an interruption of the slave trade. Thus, the commitment to cease slave imports in 1830 was openly disregarded for 20 years, and enforcement came only as a direct result of British pressure through the Royal Navy, especially in the second half of the 1840s.
As the final abolition of slavery only took place – without compensation to owners – in 1888, the transition to free labor remained one of the important economic issues during the empire. As free labor was attracted to Brazil, land legislation became a crucial element of wage determination for free labor. In spite of land legislation in the first half of the 1850s that would have allowed land ownership by immigrants, actual control of the land (posse) and the ability to preserve this control were the crucial factors.